‘Critical access’ label aids rural hospitals

Published: February 18, 2005

Nearly all of New Hampshire’s rural hospitals have become certified as critical access hospitals, a designation that could save them as much as 30 percent more in Medicare payments — increased reimbursements that may well mean the difference between life and death for many of the hospitals.
“Most rural hospitals are much more vulnerable financially than urban hospitals because of their lower utilization of services and their Medicaid/Medicare payer mix,” said Paula Minnehan, vice president of rural health and reimbursement for the New Hampshire Hospital Association. “We see the CAH program as securing the safety net. It ensures continued access to care.”
The Critical Access Hospital Program was created by Congress in 1997 to support small rural hospitals that have been hit hard by the exploding cost of health care. Central to that piece of legislation was a new method of Medicare reimbursement. A CAH would be reimbursed more closely to the actual cost of care rather than the traditional “prospective payment” system, which uses a complicated formula based on a hospital’s financial data and Medicare’s allowable costs.
To receive the critical access hospital, or CAH, certification, a facility must meet a set of stringent requirements:
• The hospital must be located in a rural area
• It must be more than 35 miles away from another CAH, more than 15 miles away in areas with mountainous terrain or secondary roads, or be certified by the state as being a “necessary provider” to the area. (The “necessary provider” designation will sunset on Jan. 1, 2006.)
• It must operate only 25 or fewer acute-care inpatient beds
• It must have an average length of stay of 96 hours (four days) or less
• It must provide 24-hour emergency care
• It must have transfer arrangements with a larger tertiary-care hospital
• It must develop an access improvement plan
According to Minnehan, the cost-based reimbursement methodology is not a panacea for all hospitals, since large facilities, because of their patient populations and payer mix, actually receive greater reimbursement through the traditional prospective payment system using DRGs, or diagnostic related groups — groups of diseases or diagnoses that have similar utilization of resources and patient lengths of stay. (Medicare reimburses hospitals for DRGs with a fixed payment based on the expected cost of care, or prospective payment, for patients with a diagnosis under that DRG.)
For Androscoggin Valley Hospital in Berlin, being a CAH could mean recouping as much as $2 million annually, said CEO Russell Keene.
Androscoggin — one of the last of New Hampshire’s 13 eligible rural hospitals to gain CAH status when it did so on Jan. 1 - has the highest percentages of Medicare patients in the state, said Keene. “We don’t know yet precisely how much our reimbursements will be, but we know it will certainly be a dramatic difference,” said Keene.
To New London Hospital CEO Bruce King, CAH status has been a help, mainly because the certification “acknowledges that small rural providers have similar fixed costs like larger institutions, but not the same patients.”
King said increased Medicare reimbursements have been a key component of the hospital’s plan toward financial stability.
“We went into the certification process after five or six years of negative financials. The CAH designation didn’t solve everything. The reimbursements were valued at $1.5 million, and we were losing some $5 million. But improving our Medicare reimbursements was definitely one of the motivating factors toward becoming a CAH,” he said.
New London Hospital finished in the black last year, King said.
According to the New Hampshire Hospital Association, Monadnock Community Hospital in Peterborough is awaiting CAH certification. Speare Memorial Hospital in Plymouth and Huggins Hospital in Wolfeboro are eligible, but have not completed the designation process.
Better care?
Of all the CAH requirements, the 25-bed limit and the 96-hour average length of stay are probably the most crucial.
While 25 acute-care beds might seem inadequate, even for a rural hospital, that is not the case. All of New Hampshire’s rural hospitals had inpatient populations running at 20 or below at any given time, in some cases not much more than a dozen, said Minnehan. Androscoggin’s highest average daily census in 2003, for instance, was about 23 patients. New London’s census runs about 18.
Physically, a CAH may be licensed for more beds - Androscoggin is licensed for 96 beds - but those beds can no longer be used for acute inpatient care and must be “taken off line,” said Minnehan. “In many cases, the ‘extra’ beds were not paying anyway.”
The four-day average length of stay also might seem to raise concerns, but with modern medicine, most patients are discharged within a few days, many going home just hours after same-day surgery.
Both Androscoggin and New London have average lengths of stay of just over two days.
If patients require greater levels of care or longer stays, they will most likely be transferred to a larger hospital. In fact, transfer agreements with other institutions are a part of the CAH certification process.
“The idea is for the CAH to stabilize. If they cannot treat the patient within the 96-hour length of stay, they will transfer the patient,” said Minnehan.
What happens if a CAH’s annual average length of stay is greater than 96 hours? “It would take a lot to increase that number,” answered Minnehan. “So far, it hasn’t been a problem in New Hampshire.”
Besides the significant cost reimbursement, CAH hospitals also realize better cohesion of care between rural services through the development of an access improvement plan.
The plan is developed as part of the application process and focuses on emergency medical services, “but results in supporting a system that is much more coordinated,” said Minnehan.
This step was the biggest, but most important, challenge for Androscoggin, said Keene. The CAH designation could easily be misinterpreted as a reduction in services or increasing inappropriate discharges. “We had a good understanding of what and why the CAH status met our ongoing mission, but communication between the board, the medical staff and the public was needed. We felt strongly that we didn’t want to impact the community in any negative way. We worked very hard to hold community forums and really reach out to inform the public,” he said.
New London is putting “more of a focus on secondary services” because of its access improvement plan, said King.
“Other access needs, such as access to primary care, pediatric and OB care, dental or mental health services may also be identified, ensuring that there is a more organized process of delivering care,” Minnehan said. “The CAH designation actually makes a stronger community hospital.”

This article appears in the February 18 2005 issue of New Hampshire Business Review